$1$

Q (a) (b) (c) (iii) (iv) (d) Income Statement (profit and loss account) for the year ended 31 December 2019. Revenue Cost of sales Gross profit Operating expenses Operating profit Interestpayable Profit before taxation Taxation Retained profit for theyear Required: Calculate the percentage increase in sales. 2019 E'OOO 12,410 8,048 4,362 2 025 2,337 78 2,259 994 1 ,265 2018 E'OOO 7,831 4,850 2,981 1 531 1 ,450 22 1 ,428 628 800 [5] Carry out a vertical analysis of the Income Statement (i.e. calculate every line of the Income Statement as a percentage of sales). Using the figures you have calculated, compare the 2019 results with the 2018 results and suggest reasons why the relationships might have changed. Calculate the following accounting ratios for both 2019 and 2018. Gearing ratio. Interest cover. Current ratio. Acid test (quick) ratio. [45] [10] [6] [6] Comment on the ratios in c) above, whilst discussing the long and short-term liquidity of the company. Also discuss the benefits or otherwise of increasing or decreasing the gearing of a company. [22] Ratios in b) and c) should be calculated on year-end numbers and not averages. A selection of formulae for ratios is attached at the end of this paper on pages 9 and 10. Not all of these formulae may be relevant.